Growth and Disruption: Microfinance in Myanmar
As part of our Best of 2016 series, we are re-publishing some of the top articles from the past year.
Microfinance in Myanmar is developing at an incredible pace. Prior to 2011, only four NGOs were allowed to offer microfinance services among their charitable activities. Save the Children’s Dawn Microfinance program, one of the original four, began in 2002 providing small loans to pregnant women to help cover expenses for prenatal care. The program evolved to become a more traditional group-lending microfinance program, growing its portfolio to over 25,000 female business owners by 2015. Myanmar’s 2011 Microfinance Law formalized the industry, allowing for-profit microfinance companies to register and begin lending to clients. Over 250 licenses have been approved in the five years since the law’s passage, as local and international microfinance providers race to capture the country’s vast untapped market. Despite the increasing competition, over 70% of Myanmar adults had no access to the formal financial sector as of 2013. The situation has not significantly improved since.
In early 2014, Save the Children, seeking to focus on its child protection activities in Myanmar and move away from microfinance operations, invited a consortium consisting of Accion, Netherlands-based Triodos Investments, and FMO, the Dutch development bank, to take over management of the program. Dawn’s transformation from a donor-funded program to a for-profit microfinance company was completed in March 2015.
Dawn finished its first fiscal year as a standalone microfinance company on March 31, 2016. As of that day, Dawn served 60,778 borrowers across 19 branches, with an outstanding loan portfolio of 9.03 billion Myanmar Kyats (approximately US $8.0 million), and a 30-day Portfolio at Risk of 0.00%.
These figures represent a 119% increase over last March’s active borrower total of 27,776 and a 222% increase over last March’s gross loan portfolio of 2.78 billion Myanmar Kyats (U.S. $2.3 million). Dawn finished its fiscal year as the third-largest microfinance institution in Myanmar measured by number of active borrowers.
While the entire microfinance sector in Myanmar has grown over the last 12 months, Dawn’s performance has been a positive outlier in the industry. But Dawn’s growth over the last twelve months was by no means assured, nor was it easy. Dawn’s recent success came from a commitment on the part of shareholders to provide sufficient capital, comprehensive technical assistance from Accion, aggressive adoption of technology to improve efficiencies, and fierce loyalty and hard work from Dawn’s staff.
Shortly after Accion and its partners invested in Dawn in March 2015, the technical assistance team sought to improve Dawn’s competitiveness and social impact. Upfront fees – the amount that borrowers pay at the disbursement of their loan – were reduced from 3% to 2%, and Dawn began providing payment for funeral expenses, along with loan forgiveness, to the families of clients who died with a loan outstanding.
Dawn also instituted an employee incentive plan, rewarding staff for recruiting new clients, increasing portfolio under management, and maintaining a very low rate of delinquent loans. Branch Managers were encouraged to adopt monthly growth targets and work closely with loan officers and cashiers in the branches to see those targets met or exceeded. Staff motivation skyrocketed – branch managers and loan officers began spending the majority of their days outside the physical branch office, constantly recruiting new clients at orientation sessions or visiting the businesses of potential borrowers.
When Accion first began working with Dawn, loan officers relied entirely on hand-written notebooks to manage their daily collection schedules. Up to half of the loan officers’ time each day was spent manually copying clients’ names, loan balances, and amounts from the prior collection page to the next. Accion worked with Dawn to develop a platform and process to generate “readymade collection sheets” for each loan officer. These collection sheets would be distributed from the head office to each branch on Fridays, giving every loan officer a pre-printed worksheet detailing the amounts due from each of their borrowers for the coming week.
Loan officers suddenly were able to spend much more time outside the branch instead of sitting at their desk copying collection details into their notebooks. Loan officer productivity jumped from 332 borrowers per loan officer as of March 31, 2015, to over 450 borrowers per loan officer one year later. While some loan officers complained about the increased time spent outside the branch, most were excited to have more ownership of their productivity and were willing to hustle to earn their monthly incentives.
Readymade collection sheets were a modest first step toward a technology-focused MFI. Dawn also installed wi-fi at each branch, enabling email communication between head office staff and branch managers. Messages that previously were communicated by cell phone and that took hours to relay from head office staff to a dozen branch managers could now be instantly communicated without doubt or confusion.
Dawn also began adopting a Management Information System called Kredits in June 2015, enabling each branch to digitize its loan files, generate disbursement and collection sheets automatically instead of writing them by hand or receiving them from head office, and giving head office staff access to client-level detail on the institution’s entire portfolio.
No innovations in strategy or technology would have expanded Dawn’s portfolio without sufficient funding to lend to new borrowers. As a grant-funded project of Save the Children, Dawn had limited access to capital. Clients were constantly requesting larger loans than what Dawn was able to offer.
Once the transfer from Save the Children was complete, the new shareholders provided Dawn with almost $8 million in additional capital. The additional capital allowed Dawn to increase its average loan size from $150 to $244 during the year, providing a much needed boost to loyal clients who had patiently repaid lower-sized loans. In addition to increasing loan sizes for existing borrowers, the additional funding helped DAWN open seven new branches and recruit almost 33,000 new clients.
As this expansion capital is gradually being invested in portfolio growth, Dawn is now seeking debt funders. Regulations have eased in the year since Dawn was first capitalized, which will hopefully enable Dawn to receive the financing necessary to continue on its path of healthy and sustainable growth.
The Year Ahead for Dawn
Beginning in April 2016, Dawn introduced a twelve-month loan product at all branches, with a plan to gradually phase out six-month loans. Shifting to higher-size, longer-tenor loans will allow Dawn to increase its interest income and loan officer productivity, while continuing to offer manageable repayment schedules tailored to the capacities of Myanmar’s low-income population.
Dawn will also begin offering a “Top-Up” loan to borrowers of its twelve-month loan product, allowing the institution and the borrower to decide if they have the capacity to manage additional financing at the halfway point of their twelve-month loan cycle.
During this second year, Dawn will continue lending exclusively to groups of low-income, working women, but will begin the process of identifying high-performing borrowers to “graduate” to individual loans in the future.
With Kredits expected to be fully operational at all of Dawn’s branches by the end of June, senior management will have far more insight into borrowers’ financial behavior, which will help Dawn tailor its marketing and growth strategy to most efficiently serve the greatest number of people. Dawn will also begin layering on technological enhancements to its newly-installed management information system, potentially including the use of digital field applications, credit scoring for groups and individuals, and alternative delivery channels for disbursement and repayments.
As formal financial services in Myanmar develop and improve, the microfinance industry will become increasingly competitive, with borrowers having access to a broader selection of providers, each offering better service and lower interest rates to potential customers. On April 5, Myanmar’s Central Bank published regulations on mobile financial services, clearing the way for a cluster of new providers to offer remittance and mobile banking services to the same clients that MFIs have traditionally served.
Dawn’s growth during its second year will not simply be a continuation of its first, but the principles underlying its success will remain the same. Continuous technological innovation, client-centered products and services, development and retention of staff, and ongoing support from funders will be critical to the institution achieving its goal of providing affordable, high-quality financial services to the vast population of underserved women in Myanmar.
Early Dawn Microfinance Company Limited (Dawn) is a partner of Accion, based in Yangon, Myanmar.